On Thursday, Dell Computer (NASDAQ: DELL - Quotes, News, Boards), the number one seller of personal computers worldwide, reported a 17% decline in net income for its fiscal third quarter ended October 29, because of costs associated with the acquisition of ConvergeNet Technologies Inc.
Dell posted net income of $289 million, or $0.11 per share, compared with $348 million, or $0.14 in the same period a year earlier. Without the acquisition costs, the PC maker would have reported earnings of $483 million, or $0.18 cents a share ? in line with a First Call Corp. survey of 27 analysts covering the company.
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?The company?s third quarter was pretty much in line with what street had been expecting,? said Jason Tsai, an analyst with SoundView Technology Group Inc. ?There were no major surprises this time around.?
The latest earnings release comes on the heels of a pre-announcement from Dell on October 19 that its third-quarter profits would be blunted by rising prices for memory chips. Those prices jumped 30 percent following a devastating earthquake in Taiwan, a major producer of computer parts. Before the warning, analysts had expected Dell to earn $0.20 a share. Dell shares fell by 6.8% in trading on the day of the pre-announcement.
However, Mark Corcoran, an analyst at D.A. Davidson, said that Dell has most likely seen the worst of the pressures on memory pricing and subsequent shortages in the third quarter and that, as production in Taiwan begins to come back on line, the situation may improve.
?Michael Dell noted on the earnings conference call that they?re starting to see component price problems start to get better,? Corcoran said. ?DRAM [dynamic random access memory] spot prices have gotten markedly better, and in the fourth quarter and certainly the first quarter of next year, we should see a much more favorable pricing structure.?
Dell?s revenues for the third quarter climbed to $6.78 billion from $4.82 a year ago, a 41% increase. That compares to year-over-year revenue growth of 42 percent in the second quarter, and 41 percent in the first quarter. How?s that for consistency?
On a regional basis, Dell said its Asia-Pacific/Japan sales led the pack, rising at 69% year-over-year. In China, sales tripled over the 1998 third quarter. Revenue in the Americas was 45 percent higher than that of the year-ago period, and European sales increased by 22 percent.
Dell noted in its earnings release that sales of servers, workstations and storage products leapt by 72 percent in the latest quarter and comprised 17 percent of total earnings ? a new high for the group. The company attributed the increase in part to the October 27 acquisition of San Jose, Calif.-based ConvergeNet, which makes storage domain management technology. At the time, Dell said it expected a charge against third-quarter earnings of between $0.05 and $0.07 per share related to the acquisition.
Tsai said the increase of server and workstation sales as a percentage of total revenue is a welcome change for Dell, giving a healthy boost to the bottom line. ?Enterprise sales definitely give Dell a better margin than sales of desktop PCs and even sales of portables,? the analyst said. ?This should prove to be an excellent shift for them.?
D.A. Davidson?s Corcoran agreed. ?Dell is seeing the writing on the wall that PC prices are going to continue to go down,? and adding more enterprise business to the mix is one way to ease the pain of lower consumer prices, he said.
Dell ended the third quarter with $798 million in cash and $5.06 billion in marketable securities. Long-term debt stood at $508 million. The company also trimmed its inventory supply to six days? worth from seven a year ago.
Prior to the earnings release, Dell shares ended the regular trading session at $43.44, up $2 on the day. The stock barley budged in after hours trading.
We continue to feel that Dell has one of the strongest business models that we have ever come across. Continued capital spending on high tech equipment next year should drive the stock higher in the quarter to come.
Analyst: Justin Opelaar |
